-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KCxGTozCan2aNGRj9gwBjV7sYHCV/7U0WSqFFgUY6klA8BpQD8V13V5WlxQQvafj b3Rxxk9OctiYQyGIsJaL6g== 0000914317-01-500340.txt : 20010917 0000914317-01-500340.hdr.sgml : 20010917 ACCESSION NUMBER: 0000914317-01-500340 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010731 FILED AS OF DATE: 20010914 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY CENTRAL INDEX KEY: 0000036840 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 221697095 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-25043 FILM NUMBER: 1737073 BUSINESS ADDRESS: STREET 1: 505 MAIN ST STREET 2: P O BOX 667 CITY: HACKENSACK STATE: NJ ZIP: 07602 BUSINESS PHONE: 2014886400 MAIL ADDRESS: STREET 1: P O BOX 667 STREET 2: 505 MAIN STREET CITY: HACKENSACK STATE: NJ ZIP: 07602 10-Q 1 form10q-40681_91001.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended July 31, 2001 Commission File No. 2-27018 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY ------------------------------------------------------- (exact name of registrant as specified in its charter) New Jersey 22-1697095 - ------------------------------- -------------------- (State or other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 505 Main Street, P.O. Box 667, Hackensack, New Jersey 07602 ------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 201-488-6400 ------------ - ------------------------------------------------------------------------ Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY INDEX Part I: Financial Information Item 1: Unaudited Condensed Consolidated Financial Statements a.) Condensed Consolidated Balance Sheets as at July 31, 2001 and October 31, 2000; b.) Condensed Consolidated Statements of Income, Comprehensive Income and Undistributed Earnings for the Nine and Three Months Ended July 31, 2001 and 2000; c.) Condensed Consolidated Statements of Cash Flows for the Nine Months Ended July 31, 2001 and 2000; d.) Notes to Condensed Consolidated Financial Statements. Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations. Item 3: Quantitative and Qualitative Disclosures of Market Risk. Item 1: Financial Statements FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS
July 31, October 31, 2001 2000 ---- ---- (Unaudited) (See Note 1) ----------- ------------ (In Thousands of Dollars) ------------------------- ASSETS ------ Real estate and equipment, at cost, net of accumulated depreciation $ 77,247 $ 78,038 Investments in marketable securities 4,518 9,451 Cash & cash equivalents 8,712 2,925 Due from related party -- 1,066 Tenants' security accounts 871 766 Sundry receivables 2,585 1,794 Prepaid expenses and other assets 1,994 1,361 Deferred charges, net 1,265 1,380 -------- -------- Totals $ 97,192 $ 96,781 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Liabilities: Mortgages payable $ 69,575 $ 70,214 Accounts payable and accrued expenses 1,449 854 Cash distributions in excess of earnings and investment in affiliate 378 352 Dividends payable 936 1,794 Tenants' security deposits 1,223 1,073 Deferred revenue 431 303 -------- -------- Total liabilities 73,992 74,590 -------- -------- Minority interest 1,273 1,047 -------- -------- Commitments and contingencies Shareholders' equity: Shares of beneficial interest without par value: 1,790,000 shares authorized; 1,559,788 shares issued and outstanding 19,314 19,314 Undistributed earnings 2,595 1,879 Accumulated other comprehensive income (loss) 18 (49) -------- -------- Total shareholders' equity 21,927 21,144 -------- -------- Totals $ 97,192 $ 96,781 ======== ========
See Notes to Condensed Consolidated Financial Statements. FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF INCOME, COMPREHENSIVE INCOME AND UNDISTRIBUTED EARNINGS NINE AND THREE MONTHS ENDED JULY 31, 2001 AND 2000 (Unaudited)
Nine Months Three Months Ended July 31, Ended July 31, ----------------------- ------------------------ 2001 2000 2001 2000 (In Thousands of Dollars,except Per Share Amounts) INCOME Revenue: Rental income $ 11,737 $ 10,703 $ 3,962 $ 3,873 Reimbursements 1,936 1,555 650 561 Equity in income of affiliate 118 107 56 35 Net Investment Income 593 620 189 204 Sundry income 263 326 179 219 -------- -------- -------- -------- Totals 14,647 13,311 5,036 4,892 -------- -------- -------- -------- Expenses: Operating expenses 3,023 2,530 930 769 Management fees 570 512 187 193 Real estate taxes 1,745 1,603 587 565 Financing costs 4,074 3,779 1,300 1,400 Depreciation 1,653 1,442 551 542 Minority interest 47 17 31 11 -------- -------- -------- -------- Totals 11,112 9,883 3,586 3,480 -------- -------- -------- -------- Income before state income taxes 3,535 3,428 1,450 1,412 Provision for state income taxes 11 10 4 3 -------- -------- -------- -------- Net income $ 3,524 $ 3,418 $ 1,446 $ 1,409 ======== ======== ======== ======== - -------------------------------------------------------------------------------------------------------------------------- Basic earnings per share $ 2.26 $ 2.19 $ 0.93 $ 0.90 Diluted earnings per share $ 2.25 $ 2.19 $ 0.92 $ 0.90 - -------------------------------------------------------------------------------------------------------------------------- Basic weighted average shares outstanding 1,560 1,560 1,560 1,560 Diluted weighted average shares outstanding 1,565 1,560 1,571 1,560 - -------------------------------------------------------------------------------------------------------------------------- COMPREHENSIVE INCOME Net income $ 3,524 $ 3,418 $ 1,446 $ 1,409 Other comprehensive income (loss)- unrealized gain (loss) on marketable securities 67 (120) (12) 49 -------- -------- -------- -------- Comprehensive income $ 3,591 $ 3,298 $ 1,434 $ 1,458 ======== ======== ======== ======== UNDISTRIBUTED EARNINGS Balance, beginning of period $ 1,879 $ 1,253 $ 2,085 $ 1,703 Net income 3,524 3,418 1,446 1,409 Less dividends (2,808) (2,339) (936) (780) -------- -------- -------- -------- Balance, end of period $ 2,595 $ 2,332 $ 2,595 $ 2,332 ======== ======== ======== ======== Dividends per share $ 1.80 $ 1.50 $ 0.60 $ 0.50 ======== ======== ======== ========
See Notes to Condensed Consolidated Financial Statements. FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED JULY 31, 2001 AND 2000
2001 2000 ---- ---- (In Thousands of Dollars) ------------------------- Operating activities: Net Income $ 3,524 $ 3,418 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,813 1,581 Equity in income of affiliate (118) (107) Deferred revenue 127 57 Minority interest 47 17 Changes in operating assets and liabilities: Tenants' security accounts (105) 16 Sundry receivables, prepaid expenses and other assets (1,295) (858) Deferred charges (45) (151) Accounts payable and accrued expenses 595 320 Tenants' security deposits 150 78 ------- ------- Net cash provided by operating activities 4,694 4,371 ------- ------- Investing activities: Capital expenditures (862) (706) Distributions from affiliate 144 172 Sale of marketable securities 5,000 5,000 Acquisition of partnership interests (4,728) Good faith deposits (129) ------- ------- Net cash used in investing activities 4,153 (262) ------- ------- Financing activities: Received from sale of 25% minority interest in Olney 1,066 Capital contribution by minority interest in Olney 179 Dividends Paid (3,666) (3,197) Repayment of mortgages (639) (573) Deferred mortgage costs (62) ------- ------- Net cash provided by (used) in financing activities (3,060) (3,832) ------- ------- Net increase in cash and cash equivalents 5,787 277 Cash and cash equivalents, beginning of period 2,925 2,083 ------- ------- Cash and cash equivalents, end of period $ 8,712 $ 2,360 ======= ======= Supplemental disclosure of cash flow data: Interest paid $ 3,980 $ 3,699 ======= ======= Income taxes paid $ 11 $ 10 ======= ======= Dividends declared but not paid $ 936 $ 780 ======= =======
Supplement schedule of non cash investing and financing activities: During the nine months ended July 31, 2000, the Trust completed an acquisition of a 98,900 square foot retail property in Olney, MD for approximately $15,648,000, in part, with the proceeds of a $10,920,000 mortgage See Notes to Condensed Consolidated Financial Statements FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Organization and significant accounting policies: First Real Estate Investment Trust of New Jersey ("FREIT") was organized November 1, 1961 as a New Jersey Business Trust. FREIT is engaged in owning residential and commercial income producing properties located primarily in New Jersey, Maryland and New York. FREIT has elected to be taxed as a Real Estate Investment Trust ("REIT") under the provisions of Sections 856-860 of the Internal Revenue Code, as amended. Accordingly, FREIT does not pay Federal income tax on income whenever income distributed to shareholders is equal to at least 95% of real estate investment trust taxable income. Further, FREIT pays no Federal income tax on capital gains distributed to shareholders. Basis of presentation: The accompanying condensed consolidated financial statements have been prepared without audit, in accordance with accounting principles generally accepted in the United States of America for interim financial statements and pursuant to the rules of the Securities and Exchange Commission. Accordingly, certain information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements have been omitted. It is the opinion of management that all adjustments considered necessary for a fair presentation have been included, and that all such adjustments are of a normal recurring nature. The consolidated results of operations for the nine and three months ended July 31, 2001 are not necessarily indicative of the results to be expected for the full year. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in FREIT's Annual Report on Form 10-K for the year ended October 31, 2000. Principles of consolidation: The condensed consolidated financial statements include the accounts of FREIT and, subsequent to March 29, 2000, its 75% owned subsidiary S and A Commercial Associates Limited Partnership ("S and A"). The condensed consolidated financial statements include 100% of S and A's assets, liabilities, operations and cash flows with the 25% interest not owned by FREIT reflected as "minority interest." All significant intercompany accounts and transactions have been eliminated in consolidation. Earnings per share: FREIT has presented "basic" earnings per share in the accompanying condensed consolidated statements of income in accordance with the provisions of Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). SFAS 128 also requires the presentation of "diluted" earnings per share if the amount differs from basic earnings per share. Basic earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding during each period. The calculation of diluted earnings per share is similar to that of basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if all potentially dilutive common shares, such as those issuable upon the exercise of stock options and warrants, were issued during the period. For the nine and three months ended July 31, 2000, diluted earnings per share have not been presented because prices of all of the outstanding stock options approximated the average fair market value and there were no additional shares derived from the assumed exercise of stock options and the application of the treasury stock method. Basic and diluted earnings per share, based on the weighted average number of shares outstanding during each period, are comprised of ordinary income. Note 2 - Investment in affiliate: FREIT is a 40% member of Westwood Hills, LLC ("WHLLC"), a limited liability company that is managed by Hekemian & Co., Inc. ("Hekemian"), a company which manages all of FREIT's properties and in which one of the trustees of FREIT is the chairman of the board. Certain other members of WHLLC are either trustees of FREIT, or their family members are trustees of FREIT or officers of Hekemian. WHLLC owns a residential apartment complex located in Westwood, New Jersey. Summarized unaudited financial information of WHLLC as of July 31, 2001 and October 31, 2000, and for the nine and three months ended July 31, 2001 and 2000 is as follows:
July 31, October 31, 2001 2000 ---- ---- (In thousands of dollars) Balance sheet data: Assets: Real estate and equipment, net $ 13,752 $ 13,942 Other 806 756 -------- -------- Total assets $ 14,558 $ 14,698 ======== ======== Liabilities and members' deficiency: Liabilities: Mortgage payable $ 15,044 $ 15,185 Other 459 398 -------- -------- Total liabilities 15,503 15,583 -------- -------- Members' deficiency: FREIT (378) (352) Others (567) (533) -------- -------- Total members' deficiency (945) (885) -------- -------- Total liabilities and members' deficiency $ 14,558 $ 14,698 ======== ========
Nine Months Ended Three Months Ended July 31, July 31, ------------------- ------------------- 2001 2000 2001 2000 ---- ---- ---- ---- (In thousands of dollars) Income statement data: Rental revenue $2,256 $2,129 $ 765 $ 721 Expenses 1,960 1,862 626 634 ------ ------ ------ ------ Net income $ 296 $ 267 $ 139 $ 87 ====== ====== ====== ======
On March 29, 2000, FREIT acquired 100% of S and A, whose primary asset is a neighborhood shopping center in Olney, Maryland. The shopping center contains approximately 98,900 square feet of gross leaseable area situated on approximately 13 acres of land. Approximately 11 acres of the land are subject to a ground lease expiring in 2078, and approximately 2 acres are owned in Fee simple. The purchase price of S and A was approximately $15,648,000 of which $4,728,000 was paid in cash and $10,920,000 was financed by the proceeds of a mortgage. FREIT sold a 25% interest in S and A as of March 29, 2000 to a group consisting principally of employees of Hekemian on the same basis and cost to FREIT. FREIT advanced on behalf of this group $1,016,000 towards their purchase price of S and A. The monies advanced by FREIT, plus interest, have been repaid. Note 3- Segment Information: SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," establishes standards for reporting financial information about operating segments in interim and annual financial reports and provides for a "management approach" in identifying the reportable segments. FREIT has determined that it has two reportable segments: Retail Properties and Residential Properties. These reportable segments offer different products, have different types of customers and are managed separately because each requires different operating strategies and management expertise. The Retail segment contains six separate properties and the Residential segment eight properties. The accounting policies of the segments are the same as those described in Note 1- Significant Accounting Policies. The chief operating decision-making group for FREIT's Retail, Residential segments and Corporate/Other is comprised of FREIT's Executive Committee of the Board of Trustees. FREIT assesses and measures segment operating results based on Net Operating Income ("NOI"). NOI is based on operating revenue and expenses directly associated with the operations of the real estate properties, but excludes deferred rents (Straight Lining), depreciation and financing costs. NOI is not a measure of operating results or cash flow from operating activities as measured by accounting principles generally accepted in the United States of America, and is not necessarily indicative of cash available to fund cash needs and should not be considered an alternative to cash flows as a measure of liquidity. Real estate rental revenue, operating expenses, NOI, and recurring capital improvements for the reportable segments are summarized below and reconciled to consolidated Net Income for the nine months and three months ended July 31, 2001 and 2000, and for the years ended October 31, 2000 and 1999. Asset information is not reported, since FREIT does not use this measure to assess performance.
Nine Months Ended Three Months Ended Years Ended ----------------------- ----------------------- ------------------------ 7/31/01 7/31/00 7/31/01 7/31/00 10/31/00 10/31/99 ------- ------- ------- ------- -------- -------- Real Estate Rental Revenue: Retail $ 8,622 $ 7,545 $ 2,977 $ 2,935 $ 10,338 $ 8,472 Residential 4,986 4,705 1,705 1,587 6,353 6,167 ----------------------- ----------------------- ----------------------- 13,608 12,250 4,682 4,522 16,691 14,639 ----------------------- ----------------------- ----------------------- Real Estate Operating Expenses: Retail 2,751 2,187 894 792 3,015 2,526 Residential 2,306 2,193 722 670 2,834 2,717 ----------------------- ----------------------- ----------------------- 5,057 4,380 1,616 1,462 5,849 5,243 ----------------------- ----------------------- ----------------------- Net Operating Income: Retail 5,871 5,358 2,083 2,143 7,323 5,946 Residential 2,680 2,512 983 917 3,519 3,450 ----------------------- ----------------------- ----------------------- $ 8,551 $ 7,870 $ 3,066 $ 3,060 $ 10,842 $ 9,396 ======================= ======================= ======================= Recurring Capital Improvements: Residential $ 348 $ 126 $ 123 $ 11 $ 342 $ 261 ======================= ======================= ======================= Reconciliation To Consolidated Net Income: Segments NOI $ 8,551 $ 7,870 $ 3,066 $ 3,060 $ 10,842 $ 9,396 Deferred Rents - Straight Lining 301 319 99 123 $ 436 $ 399 Net Investment Income 593 620 189 204 834 742 Other Income 25 14 8 8 23 Equity In Income Of Affiliate (1) 118 107 56 35 173 (52) General & Administrative Expenses (289) (274) (89) (68) (365) (434) Depreciation (1,653) (1,442) (551) (542) (1,988) (1,716) Financing Costs (4,074) (3,779) (1,300) (1,400) (5,165) (4,620) Minority Interest (48) (17) (32) (11) (31) ----------------------- ----------------------- ----------------------- Net Income $ 3,524 $ 3,418 $ 1,446 $ 1,409 $ 4,759 $ 3,715 ======================= ======================= =======================
(1) See Note 2 to the Condensed Consolidated Financial Statements. Note 4 - Commitments and contingencies: Leases: Retail tenants: FREIT leases retail space having a net book value of approximately $69,500,000 at July 31, 2001 to tenants for periods of up to twenty-five years. Most of the leases contain clauses for reimbursement of real estate taxes, maintenance, insurance and certain other operating expenses of the properties. Minimum rental income (in thousands of dollars) to be received from noncancelable operating leases in years subsequent to October 31, 2000 is as follows: Year Ending October 31, Amount ------------- -------- 2001 $ 1,954 2002 7,723 2003 7,262 2004 6,509 2005 6,020 Thereafter 46,879 -------- Total $76,347 ======= The above amounts assume that all leases which expire are not renewed and, accordingly, neither minimal rentals nor rentals from replacement tenants are included. Minimum future rentals do not include contingent rentals, which may be received under certain leases on the basis of percentage of reported tenants' sales volume or increases in Consumer Price Indices. Contingent rentals, which are not included in income until the amounts are fixed and determinable, were not material for the nine and three months ended July 31, 2001 and 2000. Residential tenants: Lease terms for residential tenants are usually one year or less. Environmental concerns: In accordance with applicable regulations, FREIT reported to the New Jersey Department of Environmental Protection ("NJDEP") that a historical discharge of hazardous material was discovered in 1997 at the renovated Franklin Lakes shopping center (the "Center"). In November 1999, FREIT received a no further action letter from the NJDEP concerning the historical discharge at the Center. However, FREIT is required to continue monitoring such discharge, the cost of which will not be material. Note 5 - Deferred fee plan: The Board of Trustees adopted a deferred fee plan (the "Plan") for its Officers and its Trustees. Pursuant to the Plan, any Officer or Trustee may elect to defer receipt of any fees that would be due them. The Trust has agreed to pay any participant in the Plan ("Participant") interest on any deferred fee at the rate of nine percent (9%) per annum, compounded quarterly. Any such deferred fee is to be paid to Participants at the later of: (i) the retirement age specified in the deferral election; (ii) actual retirement; or (iii) upon cessation of a Participant's duties as an Officer or Trustee. The Plan provides that any such deferral fee will be paid in a lump sum or in annual installments over a period not to exceed 10 years, at the election of the Participant. As of July 31, 2001, approximately $68,000 of fees has been deferred along with accrued interest of $2,000. Note 6 - Camden, NJ Apartment Complex Sale: On May 18, 2001, FREIT entered into a contract for the sale of its Camden, NJ apartment complex. The purchasers have elected not to purchase the property. * * * Management's Discussion and Analysis of Financial Condition and Results of Operations. Overview First Real Estate Investment Trust of New Jersey ("FREIT") is an equity real estate investment trust ("REIT") that owns a portfolio of residential apartment and retail properties. FREIT's revenues consist primarily of fixed rental income and additional rent in the form of expense reimbursements derived from its income producing retail properties. FREIT also receives income from its 40% owned affiliate, Westwood Hills, which owns a residential apartment property. FREIT's policy has been to acquire real property for long-term investment - -------------------------------------------------------------------------------- Cautionary Statement Identifying Important Factors That Could Cause FREIT's Actual Results to Differ From Those Projected in Forward Looking Statements. Readers of this discussion are advised that the discussion should be read in conjunction with the consolidated financial statements of FREIT (including related notes thereto) appearing elsewhere in this Form 10-Q. Certain statements in this discussion may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect FREIT's current expectations regarding future results of operations, economic performance, financial condition and achievements of FREIT, and do not relate strictly to historical or current facts. FREIT has tried, wherever possible, to identify these forward-looking statements by using words such as "believe," "expect," "anticipate," "intend, " "plan," " estimate," or words of similar meaning. Although FREIT believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties, which may cause the actual results to differ materially from those projected. Such factors include, but are not limited to, the following: general economic and business conditions, which will, among other things, affect demand for rental space, the availability of prospective tenants, lease rents and the availability of financing; adverse changes in FREIT's real estate markets, including, among other things, competition with other real estate owners, risks of real estate development and acquisitions; governmental actions and initiatives; and environmental/safety requirements. --------------------------------------------------------------------------- Results of Operations: Nine Months and Quarters Ending July 31, 2001 and 2000 Net Income for the nine months ended 7/31/01 increased 3.1% to $3,524,000 on revenues of $14,647,000 compared to Net Income of $3,418,000 on revenue of $13,311,000 for the nine-month period ended 7/31/00. For the quarter ended 7/31/01 Net Income increased 2.6% to $1,446,000 on revenue of $5,036,000 compared to Net Income of $1,409,000 on revenue of $4,892,000 for the prior year's quarter. RETAIL SEGMENT Changes in the Retail Segment Revenue and Net Operating Income ("NOI") have been effected principally by the acquisition of the Olney Town Center, Olney, MD ("Olney") on March 29, 2000. NOI as used in this discussion reflects operating revenue and expenses directly associated with the operations of the real estate properties, but excludes depreciation and financing costs (See Note 3 to the condensed consolidated financial statements). The following table sets forth comparative operating data separately for the Retail properties owned before the Olney acquisition ("Same Properties") and Olney:
Nine Months Ended Three Months Ended --------------------------- --------------------------- 7/31/01 7/31/00 7/31/01 7/31/00 ------- ------- ------- ------- Real Estate Rental Revenue Retail - Same Properties $ 6,986 $ 6,842 $ 2,424 $ 2,408 Olney (purchased 3/29/00) 1,636 703 553 527 --------------------------- --------------------------- Total Retail 8,622 7,545 2,977 2,935 Real Estate Operating Expenses Retail - Same Properties 2,212 1,964 715 618 Olney (purchased 3/29/00) 539 223 179 174 --------------------------- --------------------------- Total Retail 2,751 2,187 894 792 Net Operating Income Retail - Same Properties 4,774 4,878 1,709 1,790 Olney (purchased 3/29/00) 1,097 480 374 353 --------------------------- --------------------------- Total Retail $ 5,871 $ 5,358 $ 2,083 $ 2,143 --------------------------- ---------------------------
Rental revenue at FREIT's "Same Properties" increased modestly by 2.1% for the nine-month period and .7% for the three-month period. Tenants taking occupancy of their space during July (annual rentals of $200,000) raised occupancy to 96.7%. This compares to occupancy at 7/31/00 of 95.7%. New leases signed/or pending will raise occupancy to 98.3% when the tenants take occupancy over the next few months. Initial year rents for these tenants aggregate $203,000. The increase in revenues was more than offset by expenses not chargeable back to tenants via CAM charges: $106,000 of tenant account receivable write-offs (1st half of year), and $50,000 of roof repairs (third quarter). Occupancy at Olney remains unchanged at 92%, as the vacant space is being kept vacant pending the expansion (see below). Olney Expansion Olney is a 98,900 sq. ft. neighborhood shopping center. FREIT is planning an approximately 32,000 sq. ft. expansion and modernization that is expected to add to revenues, net earnings, and value to FREIT's real estate portfolio. The expansion is subject to the expansion plans being approved by the required governmental agencies, satisfactory pre-leasing of the new expanded space, and the acceptance of current tenants to be relocated in the expanded center. The expansion and modernization costs are estimated at $12 million, including lost rents from relocation of tenants. Through 7/31/01 approximately $230,000 of pre-construction development costs have been expended. If all governmental approvals are received and tenant leasing acceptable, FREIT expects to finance the expansion, in part, from construction financing and, in part, from funds available in its marketable securities portfolio and institutional money market funds.
RESIDENTIAL SEGMENT Nine Months Ended Three Months Ended -------------------------- ------------------------ 7/31/01 7/31/00 7/31/01 7/31/00 ------- ------- ------- ------- Rental Revenue: $ 4,986 $ 4,705 $ 1,705 $ 1,587 Operating Expenses: 2,306 2,193 722 670 ------------------------------------------------------- Net Operating Income: $ 2,680 $ 2,512 $ 983 $ 917 ======================================================= Recurring Capital Improvements $ 348 $ 126 $ 123 $ 11 =======================================================
Residential revenue increased 6.0% and 7.4% for the nine months and three months ended 7/31/01 compared to the comparable prior year's periods. Revenue is principally composed of monthly apartment rental income. Total apartment rental income is a factor of occupancy and monthly apartment rents. For the nine months ended 7/31/01, average occupancy was 93.9% and average monthly apartment rents were $885. For the nine months ended 7/31/00, average occupancy was 93.1% and average monthly rents were $834. The higher monthly rents are a combination of rental increases initiated in the prior fiscal year and current fiscal year increases. While occupancy is holding and rental increases being accepted, the economic downturn may slow rent increases and lower occupancy rates. During the nine months ended 7/31/01 operating expenses increased 5.2% over the same period last year. The principal causes were higher utility costs and snow removal related costs. The higher utility costs resulted from a combination of higher utility rates and a colder winter than last year. As a percentage of revenue, operating costs were 46.2% this year compared to 46.6% last year. Capital improvements over the balance of the fiscal year are expected to aggregate between $50,000 - $60,000 and will be paid out of cash provided from the Residential Segment's operations. FREIT owns 20 +/- acres of undeveloped land in Rockaway, NJ. Plans have been submitted to the Township seeking site plan approval and zoning variances for the development and construction of garden apartment units on the site. If all approvals are received, development costs are estimated at $13.8 million that FREIT will finance, in part, from construction financing and, in part, from funds available in its marketable securities portfolio and institutional money market funds. Through 7/31/01 approximately $145,000 of pre-construction development costs have been expended. FREIT entered into a contract for the sale of its Camden, NJ apartment complex. The buyers have elected not to proceed with the purchase. NET INVESTMENT INCOME Net investment income is principally interest earned from FREIT's investments in Government Agency Bonds, and an Institutional Money Market fund, and from advances (now repaid) to related parties for the sale to them of a 25% interest in S&A Commercial Associates LP (which owns Olney). Earnings received from these sources for the nine and three months ended 7/31/01 and 7/31/00 are as follows: Nine Months Ended Three Months Ended 7/31/01 7/31/00 7/31/01 7/31/00 ------- ------- ------- ------- ($000) Government Agency Bonds And Institutional Money Market: Interest Earned $ 545 $ 656 $ 179 $ 181 Realized Loss -- (68) -- -- Related Party Loans 48 28 10 21 Other -- 4 -- 2 ---------------- ---------------- $ 593 $ 620 $ 189 $ 204 ================ ================ As a result of the current lower interest rate environment than existed at the beginning of FREIT's fiscal year, $5 million of Government Agency Bonds have been called, reducing the current yield on investments by over 170 basis points since the start of the year. FREIT's current investment portfolio includes a $2 million bond paying interest at 6.5%, with a call date of 10/29/01. FREIT expects this bond to be called. These rate reductions coupled with the repayment of the related party loan is expected to result in lower Net Investment Income over the balance of the year compared to the nine months ended 7/31/01 and compared to fiscal 2000. (See "FINANCING COSTS" below for potential offsetting benefits.) EQUITY IN INCOME OF AFFILIATE FREIT's share of earnings at it 40% owned affiliate, Westwood Hills LLC, which owns a 210 unit apartment community in Westwood, NJ, increased 10.3% to $118,000 from $107,000 last year. The increase is principally attributable to average monthly rents increasing 6.4% to $1,217 from $1,144 last year. Average occupancy at 7/31/01 compared to 7/31/00 is virtually unchanged at 97.4% and 97.7% respectively. FINANCING COSTS Financing Costs for the nine months ended 7/31/01 increased 7.8% to $4.1 million from $3.8 million for the prior comparable period. The increase is wholly attributable to the Olney financing costs. Olney was acquired on March 29, 2000, and was included in operations for only four months of the nine months ended 7/31/00. The increase attributable to Olney was partially offset by reduced interest costs at the Same Properties as a result of lower mortgage balances from normal loan amortization. In addition FREIT's $10.9 million floating rate mortgage benefited from the lower interest rate environment this year compared to last year (interest charged on this loan was 8.03% at 10/31/00 compared to 5.81% at 7/31/01). The impact of reduced debt levels and lower interest rates are reflected in the reduced financing costs of $100,000 during the current quarter ended 7/31/01 compared to last year's quarter. DEPRECIATION Depreciation expense increased 14.6% to $1.7 million during the nine months ended 7/31/01 compared to $1.4 million for last year's nine month period. Almost all of this increase is attributable to Olney being included in operations for only four months during the nine-month period ended 7/31/00. FUNDS FROM OPERATIONS ("FFO") FFO is considered by many as a standard measurement of a REIT's performance. FREIT computes FFO as follows (in thousands of dollars):
Nine Months Ended Three Months Ended 7/31/01 7/31/00 7/31/01 7/31/00 ------- ------- ------- ------- Net Income $ 3,524 $ 3,418 $ 1,446 $ 1,409 Depreciation - Real Estate 1,653 1,442 551 542 Amortization of Deferred Mtg Costs 93 80 30 32 Deferred Rents (301) (319) (99) (123) Capital Improvements - Apartments (348) (230) (123) (115) Minority Interest 47 17 31 11 Other 77 73 23 34 --------------------- --------------------- Total FFO $ 4,745 $ 4,481 $ 1,859 $ 1,790 ===================== =====================
FFO does not represent cash generated from operating activities in accordance with accounting principles generally accepted in the United States of America, and therefore should not be considered a substitute for net income as a measure of results of operations or for cash flow from operations as a measure of liquidity. Additionally, the application and calculation of FFO by certain other REITs may vary materially from that of FREIT's, and therefore FREIT's FFO and the FFO of other REITs may not be directly comparable. LIQUIDITY AND CAPITAL RESOURCES Net Cash Provided By Operating Activities increased 7.4% to $4.7 million for the nine months ended 7/31/01 compared to $4.4 million for the prior year's nine month period. It is expected that cash provided by operating activities will be adequate to cover mandatory debt service payments, recurring capital improvements and dividends necessary to retain qualification as a REIT (95% of taxable income for fiscal year 2001 and 90% of taxable income thereafter). As at 7/31/01 FREIT had cash, cash equivalents and marketable securities totaling $13.2 million compared to $12.4 million at 10/31/00. These funds are available for construction and property acquisitions. As described in the segment analysis above, FREIT is planning the expansion of Olney and the construction of apartment rental units in Rockaway, NJ. The total capital required for these two projects is estimated at $25.8 million. FREIT expects to finance these costs, in part, from construction and mortgage financing and, in part, from funds available in its marketable securities portfolio and institutional money market funds. At 7/31/01 FREIT aggregate outstanding mortgage debt was $69.6 million. Approximately $58.6 million bears a fixed weighted average interest rate of 7.512%, and an average life of approximately 9.5 years. Approximately $10.9 million of mortgage debt bears an interest rate equal to 175 basis points over LIBOR and resets every 90 days. This mortgage note is due in March 2002, but can be extended for one year. The fixed rate mortgages are subject to amortization schedules that are longer than the term of the mortgages. As such, balloon payments for all mortgage debt will be required as follows: Year $ Millions ---- ---------- 2002 $ 10.9 2005 $ 6.6 2007 $ 15.7 2010 $ 9.2 2013 $ 17.5 The following table shows the estimated fair value and carrying value of FREIT's long-term debt at July 31, 2001 and October 31, 2000: July 31, October 31, (In Millions) 2001 2000 ------------- ---- ---- Fair Value $69.7 $71.0 Carrying Value $69.6 $70.2 Fair values are estimated based on discounted cash flow analysis. Changes in assumptions or estimation methods may significantly affect these fair value estimates. FREIT expects to re-finance the individual mortgages with new mortgages when their terms expire. If interest rates, at the time any individual mortgage note is due, are higher than the current fixed interest rate, higher debt service may be required, and/or re-financing proceeds may be less than the amount of mortgage debt being retired. FREIT believes that the values of its properties will be adequate to command re-financing proceeds equal to, or higher than the mortgage debt to be re-financed. DIVIDENDS For the quarter ended July 31, 2001, FREIT has declared a dividend of $.60 per share payable on September 18, 2001 to shareholders of record on September 4, 2001. This raises total dividends for the 2001 fiscal year to $1.80 per share compared to last year's dividends per share of $1.50 for the nine months ended 7/31/00. Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See "Liquidity and Capital Resources" above. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY ---------------------- (Registrant) Date: September ___, 2001 /s/ William R. DeLorenzo, Jr. ------------------------------ (Signature) William R. DeLorenzo, Jr. Executive Secretary and Treasurer -----END PRIVACY-ENHANCED MESSAGE-----